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Spain's recession over _ cold comfort for jobless

October 23, 2013
Associated Press

MADRID (AP) — Spain's crushing two-year recession ended in the third quarter, the central bank said Wednesday. But the reality on the ground remained grim, with unemployment expected to take years to drop from record highs and the young emigrating to find a future.

Preliminary figures show Spain's economy grew 0.1 percent from July through September compared with the previous quarter. The growth blip, expected to be confirmed Oct. 30 by the national statistics agency, was driven by stronger exports after the economy declined for nine straight quarters.

The government has been trumpeting that the recession would end soon because of reforms and tough austerity measures that it says has helped convince investors Spain is a much safer bet than it was a year ago, when it came close to needed a national bailout like the one that went to Greece.

Even Microsoft co-founder Bill Gates showed some faith in the country's future by buying a stake this week in a Spanish construction company.

Still, experts say the country is just one step along the way toward a meaningful recovery. The unemployment rate, which is due to be updated Thursday for the third quarter, is at a stunning 26.3 percent.

"Spain is out of the woods in terms of a worst case scenario of needing a full bailout, but it's going to be a very long-term recovery. Unemployment is going to continue to be very high for a number of years," said Antonio Barroso, an analyst with the London-based Teneo Intelligence consulting firm.

SLIGHT ECONOMIC GROWTH

Spain has been in and out of recession for most of the past four years and significant growth is a distant memory that came to a halt in 2008 with the international financial crisis and the implosion of Spain's building boom that had lasted for more than a decade.

The current uptick is due to exporters that make cars, auto components, steel, women's clothing and agricultural goods — products that have benefited from the country's painful drive to cut wages and increasing global demand. Spain also saw a strong summer tourism season, with many travelers spooked away from countries like Egypt and Turkey amid social unrest.

But most of Spain's exporters are large companies. The small- and medium-sized companies that account for more than half of the economy are more exposed to the weak domestic market. And banks, many of which have needed rescuing over the past three years, are too afraid to give them the loans needed to expand operations and hire workers.

Despite the emergence from recession, the government predicts the economy will shrink 1.3 percent for 2013 as a whole. Next year, it is forecast to grow a meager 0.7 percent. Independent analysts are more pessimistic, with some predicting the economy will go into reverse.

"The government's optimism is based on indicators of improvements in Spain's financial state but not on improvements in the real economy on the ground," said Javier Flores, an analyst with the Asinver investment group. "Is the recession over? Yes, from an academic point of view. But has the crisis being suffered by Spaniards ended? No."

HIGH UNEMPLOYMENT

Creating the most pain in Spain is the worst jobless rate in the European Union after Greece. For people under age 25, it is a stunning 56 percent, prompting many to emigrate to Britain, Germany and Latin America for work.

And Spain's export success hasn't translated into many new jobs because the new business only emerged after companies "cut costs to the bone," said Gayle Allard, a labor market specialist with Madrid's IE Business School.

At a demonstration against government cutbacks in Madrid on Wednesday, students said they have little hope of finding work that will allow them to meet the standard of living their parents enjoyed during Spain's economic boom.

"I think all the people who are studying now may never work in their career area because it's not possible and they must emigrate," said 20-year-old university student Beatriz Otero.

Miguel Ortega, 36, was laid off a year ago from his job as an administrator at an insurance company and still hasn't found any openings related to his experience.

"For me, the future is totally uncertain," he said.

BANKS' BAD LOANS

Spain's banks are in much better shape than they were last year, when the government borrowed 40 billion euros ($55 billion) from fellow eurozone countries to shore them up. However, figures show the banks still carry worryingly high amounts of bad loans and are struggling to sell off devalued property.

With most banks worried about their own finances, credit is hard to come by. Experts say that until lending picks up, the economy won't make a significant rebound.

In August, the banks' bad loans ratio — that is, counted as a percentage of their wider portfolios — rose to 12.12 percent. That is up from 11.97 percent in July and only 1 percent in 2007, the year before the bloated real estate sector collapsed.

Analysts point out that the ratio's increase is not only due to a rise in bad loans, but also to the fact that the banks' total pool of loans is shrinking, a worrying development for an economy that needs to rebound.

"My main concern is that the level of debt and (low) domestic demand will continue to be a drag, not only for Spain, but also for Europe," said Barroso, the analyst.

 
 

 

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